Most experienced investors know that when they are assessing alternative investment capital opportunities, the right management team is vital. This is even more true for smaller entrepreneurial companies, where the founding team is the driving force in the company’s growth strategy.
The problem is that if the founders have a track record of building successful companies then they will more than likely already have backers. This is compounded by UK investors often being put off if the founders have been involved with unsuccessful companies.
In the US, they consider past failures as a learning experience for entrepreneurs and often essential in developing a winning future business strategy. Additionally, they see a serial entrepreneur will use past set backs as a motivation to succeed the next time.
“You can always tell when you are on the road to success; it’s uphill all the way” Paul Harvey
By way of example, take a look at the track record below and be honest in whether you would back this entrepreneur:
Life mission is to “save humanity”.
Ousted by shareholders as the CEO of the first two companies he founded.
Next two companies experience seven critical product failures and both hover on the brink of bankruptcy.
Be honest, not the most confidence boosting of CVs.
If I add that the first two companies, Zip2 and X.com (later renamed PayPal), were sold for a combined $1.8 billion, your opinion might change.
I am sure it will when you learn the next two companies are SpaceX and Tesla and the entrepreneur is Elon Musk with an estimated net worth of $15 billion.
Bill Gates and Paul Allen started Traf-o-Data, developing software to process and analyse data from traffic tapes. The product barely worked and the company failed. It was a few years later they created the first Microsoft product.
Jeff Bezos started zShops an online auction site that ultimately failed. Never the less, this experience spawned the idea that eventually became the Amazon Marketplace.
Sir James Dyson famously developed 5,126 prototypes over 15 years before finally inventing the bagless vacuum cleaner. It’s hard to image strong investor appetite before he finally cracked it.
When everything feels like an UPHILL STRUGGLE, just think of the VIEW FROM THE TOP
So what characteristics should we look for in founding management teams to suggest they have what it takes?
- Clear Mission Statement – the management team have to agree and be clear on their business vision, objectives and goals.
- Sector expertise – the team has to bring the required skills to the table in order to set the company apart.
- Defined roles – each member of a small team must be clear on their responsibilities and exactly what they need to deliver.
- Team players – the management team has to work seamlessly together so that the total management output is greater than the sum of the parts.
- Critical thinkers and problem solvers – though they are a team, the members still need to think individually and solve problems according to their own expertise.
- Good communication – this is essential in order to motivate the workforce and keep everyone on the same page. A lack of communication can divide the best teams.
- Responsible and accountable – the success of the business will be dependent upon the decisions made by the management team. They will not get everything right so it is essential they take responsibility for their mistakes, learn from them and move on.
- Goal and result orientated – business teams need to know they will be judged on success.
- Flexibility – entrepreneurial companies need to be single minded and yet open to make changes when necessary. It tends to be a fine balance and the management team must stay in touch with market developments as well as listen to different views to adapt the business plan accordingly. It is vital the team forms a consensus and buys into the amended plan (back to point 1).
Management teams need to be both focused and sufficiently self-aware to recognise they need to satisfy the above requirements.
CSS Partners has raised over £165m for entrepreneurial companies since 2001. To learn more about how we enable private investors seeking higher capital growth to invest with confidence in smaller companies click HERE.
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Any views or opinions expressed in this blog are those of the author alone, except where specifically stated that they are the views of CSS Partners LLP.